Will Gilead’s Hepatitis C Drug Bust State Budgets?

A new analysis suggests many states may, in fact, be overwhelmed as they attempt to pay for the Solvaldi medication sold by Gilead Sciences, which costs $84,000 for each patient, and several forthcoming treatments that may be priced at a similar level.

More than 750,000 Americans with chronic hepatitis C receive health care coverage through Medicaid or the prison system. And in its analysis, Express Scripts, the nation’s largest pharmacy benefits manager, consequently projects that states will collectively spend more than $55.2 billion to provide Sovaldi to all comers.

The largest per capita expense will be paid by Louisiana, where an estimated 18,000 state-funded chronic hepatitis C patients live and the state tab is projected to reach $1.4 billion, or $294 per resident. The other top five states in terms of highest per capita spending will be Delaware at $265; Mississippi at $259; Oklahoma at $223, and Texas at $200, according to the pharmacy benefits manager.

“Since health care for so many hepatitis C patients is funded by state programs, each citizen will be shouldering the unprecedented cost burden,” says Steve Miller, chief medical officer at Express Scripts, says in a statement. “The unsustainable pricing of this medication has, essentially, become a tax on all Americans.”

Looked at another way, the report says 13 states, led by Georgia and Louisiana, may spend more on hepatitis C medications than they spent last year on transportation. In other words, states will have to make trade-offs as they attempt to offer treatment to citizens, according to Jeff Myers, who heads Medicaid Health Plans of America, the trade group representing the Medicaid managed care industry.

The data, by the way, was based on each state’s Medicaid enrollment last year. The pricing for Sovaldi and ribavirin, which must be taken with the Gilead pill, incorporates the 23 percent discount that all drug makers must provide Medicaid.

The criticism is hardly new. Express Scripts, in fact, has been at the vanguard of critics bemoaning the cost of Sovaldi and has used its price tag as a proxy for the larger debate over the rising cost of prescription medicines, in general. The pharmacy benefits manager earlier this year formed a coalition with insurers, state agencies and large employers to dissuade others from paying for the treatment.

Scrutiny and concern are increasing. As we noted last week, more than a dozen European countries, led by France, are joining forces to compare Sovaldi pricing as they under take negotiations. And two U.S. senators wrote Gilead to ask for detailed financial information about the $11 billion deal in which the biotech acquired the drug, R&D costs and subsequent pricing forecasts.

In a letter to John Martin, the Gilead chief executive, the senators cited estimates that Sovaldi could increase government spending on prescription drugs by $6.5 billion this year and next if 75,000 patients enrolled in Medicare Part D. This could cause premiums to rise 8 percent, which they contend would amount to the biggest bump since 2006.

Meanwhile, the Oregon Health Plan, which provides coverage to about 600,000 state residents, says it may deny routine coverage to some of its roughly 20,000 members who have hepatitis C. The state can take this step thanks to a special waiver that allows the program, which is funded by state and federal governments, to do so when basing such decisions on cost and efficacy.

Just the same, some argue government spending on new hepatitis C treatments may be a worthwhile investment, given older alternatives, including liver transplants. And as we wrote recently, PricewaterhouseCoopers Health Research Institute estimates that, for private insurers, the cost impact of new treatments – including Sovaldi and any forthcoming medicines – will eventually decline, along with the impact on growth in spending in overall health care.

A significant piece of this puzzle may become clear this fall, when Gilead is expected to receive FDA approval for a one-pill-a-day treatment that includes Sovaldi and another compound, which studies have shown to offer a high so-called cure rate for hepatitis C sufferers. AbbVie, another drug maker, is also expected to release a similarly efficacious treatment, but requires taking more than one pill.

Pricing, however, remains unknown. There is considerable speculation about the potential strategies the drug makers may pursue, but payers are, so far, bracing themselves for at least similar, if not higher, pricing levels.

Comments (5 of 15)

Patent protection requires the invention be minutely detailed for the world and the quid pro quo is (usually) a 17 year protection for the inventor rather than having the inventor keep the technology secret. On balance this has been a good thing. One aside, Gilead's Sovaldi (sofosbuvir) patent is under pretty heavy multiple attacks. Time will tell what survives.

However, free market forces will ultimately yield the best product/price vis-à-vis demand.

11:43 am July 18, 2014

JW wrote:

"This is simply a case of what the market will bear."

And is that ethical?

Unfortunately, in this country, the "Market" decisions are automatically seen as ethical. As if we really want market conditions setting the cost for everything, and we dont even need to think about it.

This is sloppy, lazy, bs thinking. The idea that utilizing market forces to determine who has access to life saving medicine is STUPID.

10:05 am July 18, 2014

health policy wonk wrote:

This is not a classic free market situation because the intellectual property associated with Sovaldi is protected by a patent. In essence, the Federal government created the circumstances under which Gilead is able to price at any level it chooses free from competition for the next 20 years. Gilead has clearly chosen to abuse this privilege and the worry is that other Rx manufacturers will do the same in the future. The right answer is therefore to change patient law so that the R&D process is rewarded but allows multiple firms to participate in the actual manufacturing and distribution of the finished product.

4:50 pm July 17, 2014

314159 wrote:

This is simply a case of what the market will bear.
Buyer and seller decide, All others are just interfering know-nothings.

12:45 pm July 17, 2014

Nick wrote:

It sounds like Express Scripts is desperately threatened by this. Why don't they subtract (from each state) the billions paid in liver surgical procedures, liver related deaths, loss of productivity, etc., because of Hepatitis C?

I'll tell you why. Because Express Scripts won't benefit from those. But the taxpayers, patients and governments will. In financial terms and human suffering.

About Pharmalot

Pharmalot explores the fast-moving, complicated world that develops and markets medicines – and the drug makers that are attempting to replenish their pipelines while grappling with pricing and regulatory dictates, among many other challenges. Writer Ed Silverman has covered the pharmaceutical industry for nearly two decades and has closely followed the many hurdles facing drug companies as they move ideas from the laboratory to the medicine chest. He started Pharmalot while at The Star-Ledger of New Jersey and previously worked at New York Newsday and Investor’s Business Daily. Email Ed Silverman at ed.silverman@wsj.com, and follow him on Twitter @Pharmalot.